Microeconomics 20th Edition by Campbell McConnell, Stanley Brue,Sean Flynn

Exercise 4

Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium. Assuming constant costs, employ these diagrams to show how ( a ) an increase and ( b ) a decrease in market demand will upset that long-run equilibrium. Trace graphically and describe verbally the adjustment processes by which long-run equilibrium is restored. Now rework your analysis for increasing-and decreasing-cost industries and compare the three long-run supply curves.